Leighton House, which has reopened to the public after a £1.6m restoration, is a testimony not simply to one man and his vision but to a particular moment in British cultural history. Frederic, Lord Leighton built the Kensington studio-house in increments from 1865, not just as a place to live and paint but also as a stage on which he could act out the newly-dignified role of artist. With the Victorian art market booming, and questions of domestic taste pressing hard on the middle classes, Leighton needed a space where he could demonstrate his position as both president of the Royal Academy and chief exponent of a new aestheticism in painting and design. Leighton House would be his personal advertisement – his calling card to a society which, until recently, had still tended to send all but a handful of artists round to the tradesmen's entrance.

For that reason the house needed to be spectacular. Buoyed up by increasingly high fees for his paintings – in 1864 his Dante in Exile fetched 1,000 guineas – and also by family money, Leighton was able to indulge his vision for a home that expressed every side of himself as gentleman, collector, artist and professional man. Adding to the building over three decades, and still tinkering at the time of his death, he ended up with one of the most talked-about houses in the country.

Visitors gazed at the spectacular Arab Hall, with its golden dome and indoor fountain. Meanwhile, closer acquaintances, including members of the royal family, might attend one of Leighton's famous musical soirées in the cavernous studio which doubled as an assembly room, complete with minstrels' gallery. Intimate friends might be invited to spend the evening in the dining room, a red jewel-box hung with glittering Middle-Eastern ceramics and set off by crimson floorboards. Fellow artists, meanwhile, could lounge in the Silk Room, a cosy second studio space where Leighton, always a generous collector of other people's work, stacked his recent purchases on chairs.

Leighton House, as it came to be called rather than "2 Holland Park Road", was intended by its creator to be a "private palace of art". And all the evidence suggests that he achieved his dearest wish. According to a visiting American journalist, it seemed "the apartment of a virtuoso. In every square foot of space there hangs or lies some work of art ancient or modern, peculiarly rare, choice, lovely. One feasts the eye perpetually upon forms of beauty."

Following Leighton's death in 1896, his house, tucked away behind Kensington High Street, experienced the characteristic swings of fortune of all things Victorian. With no widow or children to say otherwise, Leighton's two sisters tried to sell the house. But with only one bedroom – Leighton was a single man – the house had limited appeal as a domestic property. Instead, Augusta and Alexandra turned their attention to the house's vast collection of paintings and sculpture in order to meet the generous legacies set out in their brother's will. Following the three-day sale at Christie's, hundreds of pieces, including work by Constable, Delacroix and Corot, were scattered around the world. The house itself, now something of a white elephant, became an outpost of Kensington Borough, at one point housing a children's library. During this particular incarnation, the ceilings were covered in lining paper and painted dull bronze, the spectacular gold dome in the Arab Hall disappeared under emulsion, and the rich, dark, wooden flooring was over-laid with utilitarian layers to protect against the scuffing of small boots.

Bombed twice during the second world war, the house underwent well-meaning but piecemeal restoration in the 1980s and 90s. Limited funds and changing ideas about how best to conserve the fabric of the past meant that a single room might get a facelift which, paradoxically, took it further away from the tone and style of its neighbours. The result, despite everyone's best endeavours, was a hotchpotch, with each new attempt at restoration subtracting something from the house's aesthetic coherence. The last time I visited, several years ago, Leighton House appeared awkwardly perched between a domestic space and a municipal museum.

Now, though, everything has changed. With a £1.6m budget from the Royal Borough of Kensington and Chelsea, a team of curators, craftsmen and archivists, not to mention architects and electricians, has spent 18 months in an act of painstaking re-creation. Working with old photographs, they have stripped the house of its muddling accretions – those 80s floorboards, that early-20th-century tangle of electrical cables – and taken it back to how it would have looked when the dandy Leighton held court in a building which had more in common with the great artists' homes of renaissance Italy than to a west-London self-build.

Many of the key paintings which had been dispersed have been loaned back, and now occupy their original positions. Where furniture, tiles, wallpaper and fabrics are missing, facsimiles have been commissioned from specialist makers still employing the methods of 150 years ago. Paint samples have been scraped from the undersides of original floorboards, analysed, and then made up again in all their unlikely glory. (We may not recognise "ash blue" as a colour now, but Leighton loved it and used it everywhere). The result is as near as it can be to the original splendour of the place when the genteel public was allowed to troop through on Sundays to gawp and make mental notes about how to adapt the look for their villas in Edgware. Nor were the working classes forgotten. In the summer, when the lord of the manor was safely dispatched on his travels, "the London poor" were permitted to shuffle through in an attempt to lift their spirits and educate their senses by exposing them to William Morris curtains and Iznik wall tiles. Leighton was a tireless orientalist, collecting the finest Arabian and Persian artwork from his frequent trips to Turkey, Syria and Egypt. Sometimes, when he was unable to visit his favourite sources, he would commission travelling friends, including the professional adventurer Richard Burton, to scoop up tiles, pots or carpets. Japanese and Chinese porcelain was either bought in London galleries or imported from abroad.

Working closely with his architect, George Aitchison, Leighton displayed his magpie finds with an eye to their aesthetic effect rather than to demonstrate any particular provenance. The result was, to some refined eyes, a mish-mash of styles incorporating not just the Middle East but also arts and craft and the baroque. Edward Burne-Jones, nominally a friend, spoke waspishly of Leighton's poor taste in having "all those splendid things from the East built up in such a silly way". For most people, though, the revelation that antiques belonged as much in the drawing room as the museum was hugely liberating. The age of "interior design" had begun.

While Leighton's habit of grabbing what he wanted from other cultures may give pause, there's no getting away from the impact of his splendid Arab Hall, the first main room you encounter as you enter from the street. The central dome, newly restored with gold leaf, is now a glowing marvel, perhaps best seen at dusk when it seems to shimmer with its own light source. Around it runs a spectacular frieze made up of tiny tiles, commissioned from Walter Crane, who worked on his golden ribbon in Venice before carefully transporting the finished product to west London. In the centre of the hall stands a square fountain, into which Leighton's over-excited guests were apt to tumble during particularly lively discussions, scaring the ornamental carp in the process.

Near the fountain there are two ottoman seats which have been re-upholstered in a version of William Morris's "Willow" fabric, clearly identifiable in photographs of 1895. Other materials have been trickier to track down. Restoration work on the dining room in the 1980s, for instance, uncovered scraps of what was assumed to be the original flock wallpaper. Recent analysis, however, determined that it was manufactured after Leighton's death. Working with a single, poor-quality, contemporary photograph, fabric historians set about recreating the wallpaper that Leighton had himself commissioned. This was then made up in Blackburn, using a traditional method. Other highlights include the reproduction of some exquisitely embroidered upholstery detail designed by Gertrude Jekyll. In its new/old incarnation, Leighton House has become a place of tactile luxury as well as visual splendour.

All of which makes Leighton's private rooms the more Spartan by contrast. His bedroom is small, square and simple. The single iron-frame bed differs little from the one found in the butler's bedroom in the basement. There are no images of friends and family to be seen. Instead, the walls are hung with photographs of Leighton's favourite works of art, which were intended to keep him visually stimulated even when semi-conscious. In one of his short stories, Henry James shrewdly cast Leighton as Lord Mellifont, "a public man with no corresponding private life". In these circumstances, the anecdote that Leighton's dying words were "give my love to the Royal Academy" seems likely to be true.

As well as a highly effective president of the academy, Leighton was renowned as a leading painter of his age. If his mornings were kept for the bureaucracy that came with public service, the afternoons were spent in his studio. And what a studio. It is a huge room, streaming with northern light. Leighton's main interest lay in history painting and neo-classicism, and his most instantly recognisable work is Flaming June, that heat-soused rendition of a siestering woman which now hangs in Tate Britain. His talent, however, did not end there. While Leighton was unwilling to become a society portrait artist, his studies of close friends are intimate and tender. He is also remembered from his plein air oil sketches, made on his travels through North Africa and the Middle East. Leighton House, with its refusal to be bound by a single style, genre or tone, was a fitting symbol of its creator's own capacious nature.

Still, there's no denying that the studio at Leighton House was a place of hard graft as well as wide vision. Underneath the huge window is a raised dais on which models would stand or sit for hours at a time. In an age when to be an artist's model meant mostly taking off your clothes, Leighton's sitters were clearly not ladies. And, indeed, part of the current restoration of the building's fabric emphasises the way in which these young women were expected to access the studio by the backstairs, having first entered through a separate "model's entrance". Leighton House may have been designed to showcase the artistic avant garde, but when it came to class relationships it was as purse-lipped as any suburban villa.

In the Silk Room, which doubled as a kind of informal studio/picture gallery, the atmosphere was more relaxed. Certainly it was homosocial. Leighton, for all his generous encouragement of fellow artists, especially the struggling ones, seems to have had little interest in women painters or their work. Instead, he filled this cosiest of rooms with pieces by friends such as Millais, Watts, Singer Sargent and Alma-Tadema. Sometimes he arranged swaps: Millais's Shelling Peas, for instance, was exchanged for his own bronze sculpture, Needless Alarms. Contemporary photographs of the Silk Room confirm that, once he had run out of room, Leighton happily propped paintings from his collections against chair backs. It is this obvious connection and passion for the work itself – as a visual reference for his own art, or as a talking piece among his fellow professionals – that saves Leighton's enterprise from any hint of falsifying bombast.

The success of Leighton House – as a domestic environment, professional calling card and media talking-point – encouraged other artists of the time to settle nearby, and all tried to do something similar. Leighton House, however, remains the original and best execution of the idea of an artist's studio house in late-Victorian London. It was perhaps Frederic Leighton's singular commitment to his project, undistracted by family or budgetary constraints, which makes it so spectacular. But there is surely also something about the man himself – generous, efficient and tactful as well as showy, public and extravagant - that makes a visit to his "private palace of art" such a great pleasure.

Closer to Home: Leighton's Collection Returned is at Leighton House, Holland Park, until 12 July.